Parliament majority can’t compensate for Govt’s lack of economic vision

9 December 2013 08:35 pm - 2 - {{hitsCtrl.values.hits}}

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Eran Wickramaratne, the National List Member of Parliament representing the United National Party (UNP) is a reputed Economist and had been a high-profile Corporate Executive. He was the CEO of the National Development Bank (NDB) from 2001 to 2010 and was the former Chairman of the Information and Communication Technology Agency (ICTA). He used to be the former Vice-President and Corporate Bank Head of Citibank Sri Lanka. He also served as a Director of the Board of Investment (BOI). Mr. Wickramaratne expressed his views about Sri Lanka’s budget for 2014 and the country’s current economic situation during an interview with the Daily Mirror recently. Following are some excerpts from it.

Q: What is your opinion about the national budget proposed for 2014?

This year’s budget speech was a fairly unusual one in the sense that it lacked a socio-political vision. A budget speech must have an economic programme and financial and budgetary proposals and this year’s speech lacked in that respect.
The government is making persistent attempts to paint a promising picture of the nation’s future, but the reality is far from it. ‘Mahinda Chintana Idiri Dekma 2020 is a document which focuses on the future, but we must be concerned about the present status of the economy and address those issues first. Another point I would like to make about the budget is the lack of transparency. If you look at the Budget Transparency Index, in 2010, Sri Lanka occupied the 13th place for being one of the more transparent countries with regard to the budget process; by 2012 we have dropped to the 52nd place. This major drop in transparency is a question of people of the country being involved in the pre-budget stage, in the mid-year review and the post-budget monitoring. Sri Lanka lacks in all these three stages. This is a major problem.

"Unemployment is very high with 6.5 million people unemployed. And the people, who do have jobs, don’t have sufficient income to sustain themselves with the increasing cost of living. People are grossly underpaid"

Amother point is regarding the Appropriation Bill which was taken to Supreme Court in 2010 for being inconsistent with the Constitution. The court ruled that prior approval must be obtained from Parliament when borrowings are made. The Parliament has a right to know the conditions of borrowing, the interest rate and all such details. However in 2013, the Bill was challenged again and it was taken to the Supreme Court, where it was ruled that the Bill was in consistent with the Constitution. So we have two different verdicts. What is the difference? The difference was that the Chief Justice of the country was removed before the second verdict. I would like to make a note of that before we start our discussion about the budget.

Q: One of the major areas of the budget is the taxes levied on people. What are your thoughts on this issue? Do you think we have a fair tax system?

Taxes are the largest window for government revenue. There are two broad categories when levying taxes; direct taxing and indirect taxing. In Sri Lanka direct taxes are 20 percent and indirect taxes are 80 percent. The problem with indirect taxes is that it directly adds to the cost of living because goods and services are being taxed. Regardless of the salary one is earning, everyone pays the same tax. It is an unfair tax system. When indirect taxes are high as a ratio, it is unfair by the lower-income

groups because the tax burden on them is much higher. So the government should move into a tax system made up of 40 percent direct taxes and 60 percent indirect taxes.
The other thing I would say about taxes is that there is an inconsistency in taxes. Last year. they were trying to exempt racing cars from taxes. It was clipped into the budget hoping that no one would notice. This year they did something similar with luxury brands which are high-end consumer items, consumed by foreigners and the elite. My question is what is the rationale of the government to do this? I cannot see an economic rationale in this, but I see an economic message in it; that it is arbitrary, it favours those who are better off in society and it is not fair by those who earn lower incomes.
In fact, the tax revenue can be increased, not via indirect taxes but it should be increased by direct taxes and more importantly, by bringing into the net those high income earners who are evading taxes.

Q: Let’s talk about the government expenditure. There are several major development projects in the pipeline such as the extension to the Southern Highway, Kandy Highway and the Northern Highway. And of course, we cannot forget the massive funds splashed on the CHOGM. Where are the funds coming from for these projects?

The government has been spending on infrastructure which is a long term investment. Now when you make long term investments in particular, you should invest by using your savings. But Sri Lanka’s savings are very small. Our savings are about 18 percent of the GDP; when you consider dis-savings, we are probably at about 16 percent. In comparison, India is over 30 percent and China is over 50 percent. Thus it is evident that we have a problem with our savings. So the government is borrowing money and funding public investment programmes. One problem is that there is no return so the government has to keep borrowing and is caught in a vicious cycle.
Currently the debt to GDP ratio is nearly 80 percent. Contributing further to the debt crisis, the government has turned to foreign borrowing, mainly from China, at a very high interest rate of about 8-9 percent. Basically, they are paying Shylock. The country is caught in a death trap.
The main cause for this is government’s inability to attract Foreign Direct Investments (FDI). In desperation, they have turned to unwise investments such as casinos.

Q: So what is the impact on the people?

With these high-interest debt, we have increased our risk profile. The smallest of shocks could shatter the economy.
And, we can see the impact of this on the people already. Unemployment is very high with 6.5 million people unemployed. And the people, who do have jobs, don’t have sufficient income to sustain themselves with the increasing cost of living. People are grossly underpaid. Therefore, an inevitable brain-drain is taking place with qualified professionals leaving the country to seek better employment in other countries. The poor women of the country are opting to seek jobs in the Middle-east, in unprotected environments. Basically, people’s lives are in jeopardy owing to the government’s lack of a proper economic strategy.

Q: As an economist-turned-politician, why do you think the country is experiencing a crisis?

Political stability and the economy are interconnected. What the President needs to do now is to fix the big picture. Primarily, wounds of the past need to be healed. We need truth, justice and reconciliation. Everyone must feel a sense of belonging and have access to equal opportunities. That is the way to gain the respect of the world and the rightful place of Sri Lanka amongst the international community.
Right now, the government is creating a bit of fiction with data. They are trying to hide the reality. They are trying to hide the budget deficit and the economic crisis. They are trying to hide poverty prevailing in the country. They are painting a picture of “Wonder of Asia” but only through statistics, but that is not the reality. This is not helping; it is only creating more uncertainty and instability.

"With these high-interest debts, we have increased our risk profile. The smallest of shocks could shatter the economy"

Another main issue is the rampant corruption. We need non-politicised institutions to tackle corruption. We need to restore the independence of the judiciary. The Anti-Bribery Commission needs to take on a significant role. Right now, the Anti-Bribery Commission is very insignificant. Fit and proper people are not being given their rightful positions.
This government has defined ‘democracy’ as majoritarianism and they are blinded by it. They think that the 2/3rd majority in the Parliament is democracy. But that is not democracy because that is an artificially created majority. Democracy is defined by common sense and room for dialogue. However, that is not the case in Sri Lanka. These are all factors that have contributed to the crisis Sri Lanka is currently experiencing.

Q: If the UNP was in power, how would the party handle the crisis?

A future UNP government will ensure vibrant democracy in the country, preserve the rule of the law as per the Constitution and bring economic prosperity to all the people with proper management of the economy.
Picture by Kithsiri De Mel

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Comments - 2

Ranjith Wednesday, 11 December 2013 11:06 AM

Good analysis.

But I am at a loss to realize that 6.5 million people are unemployed .As a % of total work force how much is this. I think this is a mistake.

With regard to foreign debt, the problem is high cost short term loans are on the increase compared to low cost long term loans which is a disaster.

Also debt servicing is beyond capacity to sustain.

On top of that large volume of payments due against goods and services procured by the government is outstanding.

Exports are on the decline with trade balance expanding.

So where are we heading. It may be too late to correct if and when the UNP comes to power.

Also in this democratic system, it is the general masses(who are not that knowledgeable) that will decide who will come to power complemented by the powers vested in the party that is in power.

I welcome writer's feed back as this is crucial to our motherland and future generation.

Cindy Montrose Wednesday, 11 December 2013 11:20 AM

This government do not have an economic vision to develop, but have a great vision to spend on themselves and waste the country's wealth.

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Parliament majority can’t compensate for Govt’s lack of economic vision

Q: What is your opinion about the national budget proposed for 2014?

"Unemployment is very high with 6.5 million people unemployed. And the people, who do have jobs, don’t have sufficient income to sustain themselves with the increasing cost of living. People are grossly underpaid"

Q: One of the major areas of the budget is the taxes levied on people. What are your thoughts on this issue? Do you think we have a fair tax system?

Q: So what is the impact on the people?

Q: As an economist-turned-politician, why do you think the country is experiencing a crisis?

"With these high-interest debts, we have increased our risk profile. The smallest of shocks could shatter the economy"

Q: If the UNP was in power, how would the party handle the crisis?

Comments - 2

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